What’s Next for Emerging Tech Hubs?

By Gail Kalinoski

A new report from JLL notes that technology is driving 24.2 percent of the office leasing activity in the United States and most of that is happening in some of the nation’s most expensive office markets like the San Francisco Bay Area, Silicon Valley and Manhattan. But growing tech companies willing to go an hour or more outside these locations can find some ‘hidden gems’—regions with talented tech workforces and much lower real estate prices.

Steffen Kammerer, senior vice president & leader of JLL’s Technology Group

“The top tech hubs are widely documented and their popularity comes as little surprise. So we took a look at what’s next by focusing on the key factors shaping the new, emerging tech hot spots. A ‘hidden gem’ city has a strong tech ecosystem, with a deep concentration of jobs in one or more technology professions, such as computer programmers and software developers,” Steffen Kammerer, senior vice president & leader of JLL’s Technology group, said in a prepared statement.

Hidden gems

JLL’s report, Cracking the Hardest Code: Where to Find Tech Talent, has uncovered five ‘hidden gems’—start-up friendly cities with favorable real estate conditions and access to talent like software developers and computer programmers. They are Albany, N.Y.; Sacramento, Calif.; Colorado Springs, Colo.; Madison, Wisc.; and Columbus, Ohio.

The global professional services firm has another term for these so-called hidden gems—markets of opportunity. The report notes growing technology companies that are facing real estate decisions now or in the near term are likely looking at challenging marketplaces. The competition for both a limited talent pool and great location are fierce. Finding the right space is also tough and asking rents are high.

Sacramento, CA

For example, total office occupancy costs for prime locations in downtown San Francisco were $112.71 per square foot and $96.84 per square foot in the nearby San Francisco Peninsula, according to CBRE Group Inc.’s latest annual Global Prime Office Occupancy Costs report. JLL notes companies that go an hour north to Sacramento “will benefit from a 21 percent discount on wages and significantly lower office rents.” First-quarter 2017 Class A average asking rents were $26.71 per square foot in the city and $24.30 in the Sacramento suburbs, according to the JLL Q1 Office Insight report for Sacramento. JLL reports Sacramento has a computer programmer talent pool of more than 11,000 people with an average annual salary of $84,000.

Albany, NY

JLL found Albany, the capital of the state of New York, which has been creating its own “Tech Valley” in recent years, is home to nearly 6,000 computer programmers with an average salary of $76,000 per year. With top tech schools like Rensselear Polytechnic Institute and the State University of New York Polytechnic Institute nearby, the Albany metro area has the second-highest concentration of computer programmers nationally.

Columbus, OH

Another state capital, Columbus, also has a high number of computer programmers thanks to The Ohio State University and a large number corporate headquarters like Abercrombie & Fitch, PNC Financial and Nationwide Insurance. The JLL report states Columbus has more than 11,000 computer programmers, similar to Sacramento and Austin, Texas, but with wages more favorable to employers. Columbus, which also has about 13,700 software developers, recently won the U.S. Department of Transportation’s Smart City contest. The competition pitted Columbus against 77 other cities for a grant that will allow the city to test new innovative technology for transportation, such as self-driving cars and robots in manufacturing, according to the Colliers International Columbus|Office Q1 2017 Research & Forecast Report.

The Colliers report notes average asking rents for Class A office space were $20.84 per square foot, up from $20.68 in Q4 2016. The Columbus office market posted its 20^th consecutive quarter of positive growth in Q1, a testament to a healthy economy and high leasing volume.

Colorado Springs, CO

For those who thought Denver and Boulder, Colo., were the only tech hubs in Colorado, JLL points to Colorado Springs as an alternative. The report notes that costs for commercial office space in Colorado Springs is about half that of Boulder. The city has at least 6,000 software developers attracted to the University of Colorado-Colorado Springs and the significant military-based economy that is home to major companies like Microchip Technology, Northrup Grumman and Lockheed Martin.

Madison, WI

Madison, site of the University of Wisconsin-Madison, also has a large number of software developers. At just under 9,000, it has the 10^th highest concentration of software developers in the country, relative to its size, according to the JLL report. And its wages are 40 percent lower than the highest wage market in Silicon Valley. Among the tech companies located there is Sector67, a non-profit dedicated to the next generation of technology.